Ceres Tackles Climate Risk Disclosure in New Report

March 31 is the deadline for 10-K financial filings, which this year should include climate-related disclosures, based on the Securities and Exchange Commissions' guidance.

Mar 02, 2011

The Ceres investor coalition has announced a new report aimed at improving corporate disclosure of climate-related risks and opportunities.

Developed with input from its 90-plus member Investor Network on Climate Risk, the report, Disclosing Climate Risks & Opportunities in SEC Filings: A Guide for Corporate Executives, Attorneys & Directors (pdf), outlines generally weak climate disclosure to date and steps for improving such disclosure, especially in annual 10-K financial filings that are next due from companies by March 31. Last February, the Securities and Exchange Commission (SEC) issued formal interpretive guidance on climate-related disclosures companies should provide to investors in their 10-Ks or 20-Fs, as well as quarterly filings.

"Adjusting to a world profoundly shaped by climate change is a key challenge for all leading companies," said Ceres President Mindy S. Lubber. "Ensuring that investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is essential. This report sets the bar on what investors expect on climate disclosure so that they better understand which companies are well positioned for the future and which are not."

"As a long-term investor, we need a clear account of the environmental challenges and opportunities facing the companies we choose to invest in," added Anne Stausboll, chief executive officer of the California Public Employees' Retirement System (CalPERS), the nation's largest public pension fund, which provided input on the report.

According to the report, the quality of overall disclosure is still less than satisfactory. Six concrete examples of "good quality disclosure" in financial filings by such companies as Chiquita Brands International, Siemens, Rio Tinto, AES, and Xcel Energy are included along with examples of "poor" and "weak" disclosure.

The report identifies five key categories of climate disclosure expected from companies, including:

Regulatory risks and opportunities: Quality disclosure should include specific details and quantification of impacts from proposed or enacted carbon-reducing regulations on a company's direct and indirect operations, such as impacts in costs or profits from operating power plants, fossil fuel extraction, or selling emission credits.

Physical impacts: Quality disclosure should include detailed information about significant physical effects of climate change (such as increased incidence of severe weather, rising sea levels, reduced arability of farmland and water availability) that may materially affect a company's operations, competitiveness and bottom-line results.

Indirect Consequences/Business Trends: Quality disclosure should include a thoughtful and candid discussion of management's understanding of how climate change may affect its business, whether from new opportunities or risks from decreasing demand for high carbon-intensive products or rising demand for cleaner, more energy efficient products.

Greenhouse Gas Emissions: Quality disclosure should set forth current direct and indirect GHG emissions from their operations, methodology used to produce such data and estimated future direct and indirect emissions from their operations, purchased electricity, and product/services.

Strategic Analysis of Climate Risks and Emissions Management: Quality disclosure should include a strategic assessment that includes a statement of the company's current position on climate change, an explanation of significant actions being taken to minimize risks and seize opportunities, and corporate governance actions relating to climate change, such as establishment of any management or board of director committees to address the topic.

Ceres is a coalition of investors, environmental groups, and other public interest organizations working with companies to address sustainability challenges such as climate change and water scarcity.